America first?

A long-standing feature of the US legal system, the growth of class actions in England and Wales continues to represent a significant risk for many businesses operating in this jurisdiction even without the adoption of a full US-style class action culture.

England and Wales shares much of what drives mass claims in the US: an openness to the use of litigation funding (combined with the ability to insure in respect of adverse costs risk), an active and innovative bench of claimant-side law firms, and a range of potential claims well-suited to potential class actions including collective actions for competition law breaches and securities claims brought pursuant to sections 90 and 90A of the Financial Services and Markets Act 2000 (FSMA). English courts have also proven very willing, at least at the preliminary stages of litigation, to entertain claims against English incorporated or London-listed groups in respect of acts alleged to have taken place outside the jurisdiction. Yet there are important differences.

Limited availability of “opt out” class actions

Perhaps the most important difference is the limited availability in England and Wales of so-called “opt-out” class-action mechanisms where potential claimants are assumed to be part of the class unless they take positive steps to remove themselves. This can generate very significant claims for damages (albeit often on an aggregated basis), and potentially very large payouts for the funders and law firms who finance and litigate these claims.

Continuing rise of competition collective actions

The UK’s only “opt-out” class action regime operates within the competition law space, and – fuelled by litigation funding – it is unsurprising the Competition Appeal Tribunal (CAT) continues to oversee a burgeoning roster of vast claims across a broad range of industries including cars, trucks, trains, telecoms, financial services, water and especially tech. The attractiveness of an opt-out mechanism has also seen claimants pushing the boundaries of competition law, seeking to argue an ever-growing list of behaviours (which would more intuitively be the subject of claims based on consumer, environmental, data protection or other laws) to be anticompetitive and therefore capable of redress through this specialist regime.

The jury is still out as to the regime’s effectiveness in delivering redress for class members and attractive returns for the many funders and law firms who have invested in its success. 2025 will be critical in this regard, with the CAT due to give judgment on the first cases to reach trial and several class representatives likely to face the challenge of meaningfully distributing collective settlement sums. If it delivers, this nascent regime is expected to serve as a blueprint for other areas.

Growth in securities litigation

Outside competition law, recent years have seen a significant growth in securities litigation, with multiple claims filed against corporates off the back of regulatory resolutions with authorities in the UK and internationally. Claimants have cited alleged misstatements or omissions in respect of firms’ ethics and compliance practices as having induced them to buy securities they might not have invested in. Claimant lawyers and their funders have also begun to explore claims in respect of market disclosures regarding the efficacy of supply chain due diligence and human rights practices, and increasingly environmental disclosures.

Claimants in securities litigation claims have attempted to use the so-called “representative claimant” procedure in the English Civil Procedure Rules to establish an opt-out mass-claim mechanism by the back door. This was rejected at first instance, in a claim brought by investors in Indivior, but has recently been subject to appeal with judgment keenly anticipated by parties in several pending cases.

In addition, H2 2024 has seen several first-instance decisions answering questions of direct relevance to claims based on s90/90A of FSMA, often to the advantage of defendant issuers. The courts have often taken a restrictive view of when an investor can have said to have relied on an alleged misrepresentation or omission in a market announcement, potentially excluding some passive investors from participating in these claims, and curtailed the right of shareholders in corporates to obtain material held by defendant corporates arguably subject to legal professional privilege.

Permissive approach to litigation funding

Another key difference is the apparent willingness of courts – and in particular the Supreme Court – and Parliament to intervene in the litigation funding model. Litigation funding is undoubtedly here to stay, with little sign that the current UK government takes a different view than its predecessors of the policy arguments around access to justice which militate in favour of a more permissive litigation funding regime. Yet, the decision of the Supreme Court in PACCAR Inc did inject uncertainty and risk into the litigation funding market which will not be definitively resolved until the UK government concludes its review and legislates, a process now not expected to be complete before the end of 2025 at the earliest.

These differences arguably increase the uncertainty on the claimant side of litigating class-actions in England and Wales, with a possible consequence that claimant law firms and funders seek a higher return for that higher risk at least until some of the key legal uncertainties are resolved. Nevertheless, the cost and uncertainty of defending class actions in England and Wales remains deeply unappealing for businesses. The fact the English experience is not a direct analogue of the US approach will be of cold comfort to companies wrestling with this emerging, yet material, litigation risk.